SEC Filing | Corvus Pharmaceuticals

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Corvus Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-37719

46-4670809

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(IRS Employer

Identification Number)

863 Mitten Road, Suite 102
Burlingame, CA 94010

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: (650) 900-4520

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, Par Value $0.0001 per share	CRVS	Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or any emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one)


Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 3, 2022, 46,553,511 shares of the registrant’s common stock, $0.0001 par value per share, were outstanding.

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CORVUS PHARMACEUTICALS, INC.

QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2022

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PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss	4
	Condensed Consolidated Statements of Change in Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	80
Item 3.	Defaults Upon Senior Securities	80
Item 4.	Mine Safety Disclosures	81
Item 5.	Other Information	81
Item 6.	Exhibits	81

SIGNATURES		82

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PART I - FINANCIAL INFORMATION

Item 1. Unaudited Condensed Financial Statements

CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)


	September 30,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	24,588	$	63,458
Marketable securities		25,029		5,993
Accounts receivable - related party		503		507
Prepaid and other current assets		1,152		1,354
Total current assets		51,272		71,312
Property and equipment, net		447		451
Operating lease right-of-use asset		2,467		3,190
Investment in Angel Pharmaceuticals		25,914		34,266
Other assets		248		236
Total assets	$	80,348	$	109,455

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,227	$	1,565
Operating lease liability		1,181		1,046
Accrued and other liabilities		8,570		7,081
Total current liabilities		13,978		9,692
Operating lease liability		1,689		2,601
Total liabilities		15,667		12,293
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock: $0.0001 par value; 10,000,000 shares authorized at September 30, 2022 and December 31, 2021; 0 shares issued and outstanding at September 30, 2022 and December 31, 2021		—		—
Common stock: $0.0001 par value; 290,000,000 shares authorized at September 30, 2022 and December 31, 2021; 46,553,511 shares issued and outstanding at September 30, 2022 and December 31, 2021		5		5
Additional paid-in capital		363,741		361,669
Accumulated other comprehensive (loss) income		(1,193)		1,869
Accumulated deficit		(297,872)		(266,381)
Total stockholders’ equity		64,681		97,162
Total liabilities and stockholders’ equity	$	80,348	$	109,455

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Operating expenses:
Research and development	$	10,365	$	6,991	$	20,388	$	24,327
General and administrative		2,108		2,056		6,511		7,493
Total operating expenses		12,473		9,047		26,899		31,820
Loss from operations		(12,473)		(9,047)		(26,899)		(31,820)
Interest income and other expense, net		225		(11)		336		(7)
Sublease income - related party		147		94		439		94
Loss from equity method investment		(2,730)		(1,709)		(5,367)		(2,272)
Net loss	$	(14,831)	$	(10,673)	$	(31,491)	$	(34,005)
Net loss per share, basic and diluted	$	(0.32)	$	(0.24)	$	(0.68)	$	(0.84)
Shares used to compute net loss per share, basic and diluted		46,553,511		43,947,004		46,553,511		40,270,954
Other comprehensive loss:
Unrealized gain (loss) on marketable securities		5		(2)		(77)		(4)
Cumulative foreign currency translation adjustment		(1,537)		(10)		(2,985)		1,375
Comprehensive loss	$	(16,363)	$	(10,685)	$	(34,553)	$	(32,634)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	Nine Months Ended September 30, 2022
						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income		Deficit		Equity
Balance at December 31, 2021	46,553,511	$	5	$	361,669	$	1,869	$	(266,381)	$	97,162
Stock-based compensation expense	—		—		739		—		—		739
Unrealized loss on marketable securities	—		—		—		(28)		—		(28)
Foreign currency translation adjustment	—		—		—		146		—		146
Net loss	—		—		—		—		(8,297)		(8,297)
Balance at March 31, 2022	46,553,511	$	5	$	362,408	$	1,987	$	(274,678)	$	89,722
Stock-based compensation expense	—		—		675		—		—		675
Unrealized loss on marketable securities	—		—		—		(54)		—		(54)
Foreign currency translation adjustment	—		—		—		(1,594)		—		(1,594)
Net loss	—		—		—		—		(8,363)		(8,363)
Balance at June 30, 2022	46,553,511	$	5	$	363,083	$	339	$	(283,041)	$	80,386
Stock-based compensation expense	—		—		658		—		—		658
Unrealized gain on marketable securities	—		—		—		5		—		5
Foreign currency translation adjustment	—		—		—		(1,537)		—		(1,537)
Net loss	—		—		—		—		(14,831)		(14,831)
Balance at September 30, 2022	46,553,511	$	5	$	363,741	$	(1,193)	$	(297,872)	$	64,681


	Nine Months Ended September 30, 2021
						Accumulated
				Additional		Other				Total
	Common Stock			Paid-in		Comprehensive		Accumulated		Stockholders’
	Shares	Amount		Capital		Income		Deficit		Equity
Balance at December 31, 2020	28,372,634	$	3	$	295,281	$	4	$	(223,140)	$	72,148
Stock-based compensation expense	—		—		1,225		—		—		1,225
Unrealized gain on marketable securities	—		—		—		2		—		2
Issuance of common stock in connection with at-the-market offering, net	153,257		—		601		—		—		601
Issuance of common stock upon follow-on public offering, net	9,783,660		1		31,988		—		—		31,989
Net loss	—		—		—		—		(11,580)		(11,580)
Balance at March 31, 2021	38,309,551	$	4	$	329,095	$	6	$	(234,720)	$	94,385
Stock-based compensation expense	—		—		1,173		—		—		1,173
Unrealized loss on marketable securities	—		—		—		(4)		—		(4)
Foreign currency translation adjustment	—		—		—		1,385		—		1,385
Issuance of common stock in connection with at-the-market offering, net	4,111,608		—		11,216		—		—		11,216
Net loss	—		—		—		—		(11,752)		(11,752)
Balance at June 30, 2021	42,421,159	$	4	$	341,484	$	1,387	$	(246,472)	$	96,403
Issuance of common stock upon exercise of Exchange Warrants	1,457,947		—		—		—		—		—
Common stock issued on exercise of stock options	323,069		—		1,197		—		—		1,197
Stock-based compensation expense	—		—		1,096		—		—		1,096
Unrealized loss on marketable securities	—		—		—		(2)		—		(2)
Foreign currency translation adjustment	—		—		—		(10)		—		(10)
Issuance of common stock in connection with at-the-market offering, net	2,344,740		1		17,136		—		—		17,137
Net loss	—		—		—		—		(10,673)		(10,673)
Balance at September 30, 2021	46,546,915	$	5	$	360,913	$	1,375	$	(257,145)	$	105,148

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CORVUS PHARMACEUTICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended
	September 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(31,491)	$	(34,005)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		273		367
Accretion related to marketable securities		12		207
Stock-based compensation		2,072		3,494
Loss from equity method investment		5,367		2,272
Changes in operating assets and liabilities:
Accounts receivable - related party		4		(276)
Prepaid and other current assets		202		(1,075)
Operating lease right-of-use asset		723		(1,772)
Other assets		(12)		135
Accounts payable		2,662		(1,133)
Accrued and other liabilities		1,489		352
Operating lease liability		(777)		1,575
Net cash used in operating activities		(19,476)		(29,859)
Cash flows from investing activities
Purchases of marketable securities		(46,890)		(4,863)
Maturities of marketable securities		27,765		28,422
Purchases of property and equipment		(269)		—
Net cash (used in) provided by investing activities		(19,394)		23,559
Cash flows from financing activities
Proceeds from issuance of common stock, net (includes $4,850 in aggregate gross proceeds from related parties for the nine months ended September 30, 2021)		—		31,989
Proceeds from issuance of common stock in connection with at-the-market offering, net		—		28,954
Proceeds from exercise of common stock options		—		1,197
Net cash provided by financing activities		—		62,140
Net (decrease) increase in cash and cash equivalents		(38,870)		55,840
Cash and cash equivalents at beginning of the period		63,458		16,455
Cash and cash equivalents at end of the period	$	24,588	$	72,295

The accompanying notes are an integral part of these condensed consolidated financial statements.

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CORVUS PHARMACEUTICALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Organization

Corvus Pharmaceuticals, Inc. (“Corvus” or the “Company”) was incorporated in Delaware on January 27, 2014 and commenced operations in November 2014. Corvus is a clinical-stage biopharmaceutical company. The Company’s operations are located in Burlingame, California.

Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Corvus Biopharmaceuticals, Ltd. and Corvus Hong Kong Limited. All significant intercompany accounts and transactions have been eliminated from the consolidated financial statements.

Initial Public Offering

On March 22, 2016, the Company’s registration statement on Form S-1 (File No. 333-208850) relating to its initial public offering (“IPO”) of its common stock was declared effective by the Securities and Exchange Commission (“SEC”) and the shares of its common stock began trading on the Nasdaq Global Market on March 23, 2016. The public offering price of the shares sold in the IPO was $15.00 per share. The IPO closed on March 29, 2016, pursuant to which the Company sold 4,700,000 shares of its common stock. On April 26, 2016, the Company sold an additional 502,618 shares of its common stock to the underwriters upon partial exercise of their over-allotment option, at the initial offering price of $15.00 per share. The Company received aggregate net proceeds of approximately $70.6 million, after underwriting discounts, commissions and offering expenses. Immediately prior to the consummation of the IPO, all outstanding shares of redeemable convertible preferred stock were converted into common stock.

Follow-on Public Offerings

In March 2018, the Company completed a follow-on public offering in which the Company sold 8,117,647 shares of common stock at a price of $8.50 per share, which included 1,058,823 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds received by the Company from the offering were approximately $64.9 million, net of underwriting discounts and commissions and offering expenses payable by the Company.

In February 2021, the Company completed a follow-on public offering in which the Company sold 9,783,660 shares of common stock at a price of $3.50 per share, which included 1,212,231 shares issued pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock. The aggregate net proceeds received by the Company from the offering were approximately $32.0 million, net of underwriting discounts and commissions and offering expenses.

Liquidity

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, protection of proprietary technology, dependence on key personnel, contract manufacturer and contract research organizations, compliance with government regulations and the need to obtain additional financing to fund operations. Since commencing operations in 2014, the majority of the Company’s efforts have been focused on the research and development of CPI-818, ciforadenant and mupadolimab (formerly CPI-006). The Company believes that it will continue to expend substantial resources for the foreseeable future as it continues clinical development of, seek regulatory approval for and, if approved, prepare for the commercialization of CPI-818, ciforadenant and mupadolimab, as well as product candidates under the Company’s other development programs. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, obtaining regulatory

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approvals, manufacturing and supply, sales and marketing and general operations. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial and/or regulatory approval process is highly uncertain, the Company may not be able to accurately estimate the actual amounts necessary to successfully complete the development, regulatory approval process and commercialization of CPI-818, ciforadenant and mupadolimab or any other product candidates. The Company does not expect its existing capital resources to be sufficient to enable it to fund the completion of its clinical trials and remaining development program of CPI-818, ciforadenant and mupadolimab through commercialization. In addition, its operating plan may change as a result of many factors, including those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed on March 10, 2022 and this Quarterly Report on Form 10-Q.

The Company has incurred significant losses and negative cash flows from operations in all periods since inception and had an accumulated deficit of $297.9 million as of September 30, 2022. The Company has historically financed its operations primarily through the sale of common stock and redeemable convertible preferred stock. While the Company has been able to raise multiple rounds of financing, there can be no assurance that in the event the Company requires additional financing, such financing will be available on terms which are favorable or at all. Failure to generate sufficient cash flows from operations, raise additional capital or reduce certain discretionary spending would have a material adverse effect on the Company’s ability to achieve its intended business objectives.

As of September 30, 2022, the Company had cash, cash equivalents and short-term marketable securities of $49.6 million. Management believes that the Company’s current cash, cash equivalents and short-term marketable securities will be sufficient to fund its planned operations for at least 12 months from the date of the issuance of these financial statements.

The current COVID-19 (coronavirus) pandemic, which is impacting worldwide economic activity, poses risks that the Company or its employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. The extent to which COVID-19 impacts the Company’s business, including its clinical trials and financial condition, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. As COVID-19 continues to spread around the globe, including the spread of more contagious and virulent variants, we will likely experience disruptions, including delays or difficulties in enrolling patients in our clinical trials, delays or difficulties in clinical site initiation, interruption of key clinical trial activities, delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials and delays in necessary interactions with local regulatory authorities. COVID-19 may also impact the Company’s ability to raise additional capital on a timely basis or at all, which could negatively impact short-term and long-term liquidity.

Exchange Warrants

On November 8, 2019, the Company entered into an exchange agreement (the “Exchange Agreement”) with an investor and its affiliates (the “Exchanging Stockholders”), pursuant to which the Company exchanged an aggregate of 1,458,000 shares of the Company’s common stock, par value $0.0001 per share, owned by the Exchanging Stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 1,458,000 shares of common stock (subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the Exchange Warrants), with an exercise price of $0.0001 per share. The Exchange Warrants were exercisable at any time prior to expiration. In accordance with Accounting Standards Codification Topic 505, Equity, and Accounting Research Bulletin 43, the Company recorded the retirement of the common stock exchanged as a reduction of common shares outstanding and elected to record the excess over par value as a debit to additional paid-in-capital at the fair value of the Exchange Warrants on the issuance date. The Exchange Warrants were classified as equity in accordance with Accounting Standards Codification Topic 480, Distinguishing Liabilities from Equity, and Accounting Standards Codification Topic 815, Derivatives and Hedging, and the fair value of the Exchange Warrants was recorded as a credit to additional paid-in capital and is not subject to remeasurement. The Company determined that the fair value of the Exchange Warrants is substantially similar to the fair value of the retired shares on the issuance date due to the negligible exercise price for the Exchange Warrants.

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In September 2021, the Exchange Warrants were fully exercised, resulting in the issuance of 1,457,947 shares of common stock on a net exercise basis.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Company’s functional and reporting currency is the U.S. dollar, except for its investment in its equity method investee which is the Chinese renminbi (RMB). The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business. Since its inception, the Company has incurred significant losses and negative cash flows from operations. As of September 30, 2022, the Company had an accumulated deficit of $297.9 million and cash, cash equivalents and marketable securities of $49.6 million. The Company has financed its operations primarily with the proceeds from the sale of stock. The Company will need to raise additional capital to meet its business objectives. The Company believes that its current cash, cash equivalents and marketable securities will be sufficient to fund its planned expenditures and meet its obligations through at least the next twelve months from the issuance of these financial statements.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented.

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the audited financial statements and the related notes for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 10, 2022.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from such estimates.

Foreign Currency Translation

Angel Pharmaceuticals Co., Ltd.’s (“Angel Pharmaceuticals”) functional currency is the Chinese renminbi (RMB). Angel Pharmaceuticals’ consolidated financial statements are reported in RMB. Financial information is translated from RMB to the U.S. dollar (the reporting currency) for inclusion in its condensed consolidated financial statements. Income, expenses and cash flows are translated at average exchange rates prevailing during the fiscal period, assets and liabilities are translated at fiscal period-end exchange rates, and stockholders’ equity is held at historical rates. Resulting translation adjustments are included as a component of accumulated other comprehensive income in stockholders' equity.

Concentrations of Credit Risk and Other Risks and Uncertainties

Substantially all of the Company’s cash and cash equivalents are deposited in accounts with two financial institutions that management believes are of high credit quality. Such deposits may, at times, exceed federally insured

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limits. The Company maintains its cash with an accredited financial institution and accordingly, such funds are subject to minimal credit risk. The Company’s marketable securities consist of investments in U.S. Treasury securities and U.S. government agency securities, which can be subject to certain credit risks. However, the Company mitigates the risks by investing in high-grade instruments, limiting its exposure to any one issuer, and monitoring the ongoing creditworthiness of the financial institutions and issuers. The Company has not experienced any losses on its deposits of cash, cash equivalents or marketable securities.

The Company is subject to a number of risks similar to other early stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of preclinical testing or clinical trials, its reliance on third parties to conduct its clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, and protection of proprietary technology. If the Company does not successfully commercialize or partner any of its product candidates, it will be unable to generate product revenue or achieve profitability.

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment, that of the development of and commercialization of precisely targeted oncology therapies.

Significant Accounting Policies

The Company’s significant accounting policies are described in Note 2 to its consolidated financial statements for the year ended December 31, 2021, included in its Annual Report on Form 10-K. There have been no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2022.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective in 2021 and interim periods within that year and permits for an early adoption. The Company adopted ASU 2019-12 effective January 1, 2021. The adoption of the guidance did not have a material impact on its financial statements and related disclosures.

3. Net Loss per Share

The following table shows the calculation of net loss per share (in thousands, except share and per share data):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Numerator:
Net loss - basic and diluted	$	(14,831)	$	(10,673)	$	(31,491)	$	(34,005)
Denominator:
Weighted average common shares outstanding used to compute basic and diluted net loss per share		46,553,511		43,947,004		46,553,511		40,270,954
Net loss per share, basic and diluted	$	(0.32)	$	(0.24)	$	(0.68)	$	(0.84)

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Weighted average common shares outstanding for the three and nine months ended September 30, 2021 include 1,458,000 shares of common stock issuable on the conversion of pre-funded warrants described in Note 1.

The amounts in the table below were excluded from the calculation of diluted net loss per share, due to their anti-dilutive effect:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2022	2021	2022	2021
Outstanding options	7,069,868	6,810,921	7,069,868	6,810,921

4. Fair Value Measurements

Financial assets and liabilities are measured and recorded at fair value. The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:

●

Level 1—Quoted prices in active markets for identical assets or liabilities

●

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

●

Level 3—Unobservable inputs that reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability

There have been no transfers of assets and liabilities between levels of hierarchy.

The Company’s Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default projections based on historical data and other observable inputs.

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The following tables present information as of September 30, 2022 and December 31, 2021 about the Company’s assets that are measured at fair value on a recurring basis and indicate the level of the fair value hierarchy the Company utilized to determine such fair values (in thousands):


	September 30, 2022
	Fair Value Measured Using						Total
	(Level 1)		(Level 2)		(Level 3)		Balance
Assets
Cash equivalents	$	23,713	$	—	$	—	$	23,713
Marketable securities		19,034		5,995		—		25,029
	$	42,747	$	5,995	$	—	$	48,742


	December 31, 2021
	Fair Value Measured Using						Total
	(Level 1)		(Level 2)		(Level 3)		Balance
Assets
Cash equivalents	$	61,992	$	—	$	—	$	61,992
Marketable securities		1,011		4,982		—		5,993
	$	63,003	$	4,982	$	—	$	67,985

As of September 30, 2022, marketable securities had a maximum remaining maturity of eleven months.

As of September 30, 2022 and December 31, 2021, the fair value of available for sale marketable securities by type of security were as follows (in thousands):


	September 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Treasury securities	$	19,078	$	1	$	(45)	$	19,034
U.S. Government agency securities		6,031		—		(36)		5,995
	$	25,109	$	1	$	(81)	$	25,029


	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
U.S. Treasury securities	$	1,012	$	—	$	(2)	$	1,010
U.S. Government agency securities		4,984		—		(1)		4,983
	$	5,996	$	—	$	(3)	$	5,993

5. Equity Method Investment

As of September 30, 2022 and December 31, 2021, the Company’s ownership interest in Angel was approximately 49.7%, excluding 7% of Angel’s equity reserved for issuance under the Angel ESOP. The Company recognized its share of losses in Angel for the total amount of $2.7 million and $5.4 million as loss from equity method investment on the consolidated statement of operations for the three and nine months ended September 30, 2022, respectively.

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Summary Financial Information

Summary financial information for Angel Pharmaceuticals is as follows:


		As of		As of
Balance Sheet Data (unaudited)	September 30, 2022		December 31, 2021

	(In thousands)
Current assets	$	30,879	$	38,608
Non-current assets		1,477		1,818
Current liabilities		3,236		2,119
Non-current liabilities		945		105
Stockholders' equity		28,175		38,202


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Statement of Operations Data (unaudited)	2022		2021		2022		2021

	(In thousands)
Net loss	$	(3,204)	$	(2,005)		(6,402)		(2,667)
Share of loss from investments accounted for using the equity method		(2,730)		(1,709)		(5,367)		(2,272)

6. License and Collaboration Agreements

Scripps Licensing Agreement

In December 2014, the Company entered into a license agreement with The Scripps Research Institute (“Scripps”), pursuant to which it was granted a non-exclusive, world-wide license for all fields of use under Scripps’ rights in certain know-how and technology related to a mouse hybridoma clone expressing an anti-human CD73 antibody, and to progeny, mutants or unmodified derivatives of such hybridoma and any antibodies expressed by such hybridoma, from which we developed mupadolimab. Scripps also granted the Company the right to grant sublicenses in conjunction with other proprietary rights the Company holds, or to others collaborating with or performing services for the Company. Under this license agreement, Scripps has agreed not to grant any additional commercial licenses with respect to such materials, other than march-in rights granted to the U.S. government.

Upon execution of the agreement, the Company made a one-time cash payment to Scripps of $10,000 in 2015 and is also obligated to pay a minimum annual fee to Scripps of $25,000. The one-time cash payment was recorded as research and development expense as technological feasibility of the asset had not been established and there was no alternative future use. A minimum annual fee payment is due on each anniversary of the effective date of the agreement for the term of the agreement. The Company is also required to make performance-based cash payments upon successful completion of clinical and sales milestones. The aggregate potential milestone payments are $2.5 million. The Company is also required to pay royalties on net sales of licensed products (including mupadolimab) sold by it, its affiliates and its sublicensees at a rate in the low-single digits. In addition, should the Company sublicense the rights licensed under the agreement, it has agreed to pay a percentage of sublicense revenue received at specified rates that start at double digit percentages and decrease to single digit percentages based on the elapsed time from the effective date of the agreement and the time of entry into such sublicense.

The Company’s license agreement with Scripps will terminate upon expiration of its obligation to pay royalties to Scripps under the license agreement. The Company’s license agreement with Scripps is terminable by the consent of the parties, at will by the Company upon providing 90 days written notice to Scripps, or by Scripps for certain material breaches, or if the Company undergoes a bankruptcy event. In addition, Scripps may terminate the license on a product-by-product basis, or the entire agreement, if the Company fails to meet specified diligence obligations related to the development and commercialization of licensed products. Scripps may also terminate the agreement after the third anniversary of the effective date of the agreement if it reasonably believes, based on reports the Company provides to

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Scripps, that the Company has not used commercially reasonable efforts as required under the agreement, subject to a specified notice and cure period.

Vernalis Licensing Agreement

In February 2015, the Company entered into a license agreement with Vernalis (R&D) Limited (“Vernalis”), which was subsequently amended as of November 5, 2015, and, pursuant to which the Company was granted an exclusive, worldwide license under certain patent rights and know-how, including a limited right to grant sublicenses, for all fields of use to develop, manufacture and commercialize products containing certain adenosine receptor antagonists, including ciforadenant (formerly CPI-444). Pursuant to this agreement, the Company made a one-time cash payment to Vernalis in the amount of $1.0 million, which was recorded as research and development expense as technological feasibility of the asset had not been established and there was no alternative future use. The Company is also required to make cash milestone payments to Vernalis upon the successful completion of clinical and regulatory milestones for licensed products depending on the indications for which such licensed products are developed and upon achievement of certain sales milestones. In February 2017, the Company made a milestone payment of $3.0 million to Vernalis following the expansion of a cohort of patients with renal cell cancer treated with single agent ciforadenant in the Company’s Phase 1/1b clinical trial. The aggregate potential milestone payments are approximately $220 million for all indications.

The Company has also agreed to pay Vernalis tiered incremental royalties based on the annual net sales of licensed products containing ciforadenant on a product-by-product and country-by-country basis, subject to certain offsets and reductions. The tiered royalty rates for products containing ciforadenant range from the mid-single digits up to the low-double digits on a country-by-country net sales basis. The royalties on other licensed products that do not include ciforadenant also increase with the amount of net sales on a product-by-product and country-by-country basis and range from the low-single digits up to the mid-single digits on a country-by-country net sales basis. The Company is also obligated to pay to Vernalis certain sales milestones as indicated above when worldwide net sales reach specified levels over an agreed upon time period.

The agreement will expire on a product-by-product and country-by-country basis upon the expiration of the Company’s payment obligations to Vernalis in respect of a particular product and country. Both parties have the right to terminate the agreement for an uncured material breach by the other party. The Company may also terminate the agreement at its convenience by providing 90 days written notice, provided that the Company has not received notice of its own default under the agreement at the time the Company exercises such termination right. Vernalis may also terminate the agreement if the Company challenges a licensed patent or undergoes a bankruptcy event.

Genentech Collaboration Agreements

In October 2015, the Company entered into a clinical trial collaboration agreement with Genentech to evaluate the safety, tolerability and preliminary efficacy of ciforadenant combined with Genentech’s investigational cancer immunotherapy, Tecentriq, a fully humanized monoclonal antibody targeting PD-L1, in a variety of solid tumors in the Company’s Phase 1/1b clinical trial. Pursuant to this agreement, the Company will be responsible for the conduct and cost of the relevant studies, under the supervision of a joint development committee made up of the Company’s representatives and representatives of Genentech. Genentech will supply Tecentriq. At this time, no further patients are being enrolled in this trial. As part of the agreement, the Company granted Genentech certain rights of first negotiation to participate in future clinical trials that the Company may conduct evaluating the administration of ciforadenant in combination with an anti-PD-1 or anti-PD-L1 antibody. If both parties do not reach agreement on the terms of any such participation by Genentech within a specified time period, the Company retains the right to collaborate with third parties in such activities. The Company also granted Genentech certain rights of first negotiation should the Company decide to license development and commercialization rights to ciforadenant. Should both parties not reach agreement on the terms of such a license within a specified time of period, the Company retains the right to enter into a license with another third party. This agreement will expire after a set period of time following the provision by the Company of the final clinical study report to Genentech, which has not yet been finalized.

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In May 2017, the Company entered into a second clinical trial collaboration agreement with Genentech. Under the new agreement, ciforadenant administered in combination with Tecentriq will be evaluated in a Phase 1b/2 randomized, controlled clinical study as second-line therapy in patients with non small cell lung cancer (“NSCLC“) who are resistant and/or refractory to prior therapy with an anti-PD-(L)1 antibody. This study has completed patient enrollment of 16 patients. Genentech was responsible for the conduct of the study and the Company will share the cost of the Phase 1b/2 trial, which began enrolling patients in the fourth quarter of 2017. The Company is responsible for supplying ciforadenant and retains global development and commercialization rights to ciforadenant. This agreement will expire after a set period of time following the provision by Genentech of a final study report to the Company.

Monash License Agreement

In April 2017, the Company entered into a license agreement with Monash University (Monash), pursuant to which the Company was granted an exclusive, sublicensable worldwide license under certain know-how, patent rights and other intellectual property rights controlled by Monash to research, develop, and commercialize certain antibodies directed to CXCR2 for the treatment of human diseases.

Upon execution of the agreement, the Company made a one-time cash payment to Monash of $275,000 and reimbursed Monash for certain patent prosecution costs incurred prior to execution of the agreement. The Company is also obligated to pay an annual license maintenance fee to Monash of $25,000 until a certain development milestone is met with respect to the licensed product, after which no further maintenance fee will be due. The Company is also required to make development and sales milestone payments to Monash with respect to the licensed products in the aggregate of up to $45.1 million. The Company is also required to pay to Monash tiered royalties on net sales of licensed products sold by it, its affiliates and its sublicensees at a rate ranging in the low-single digits. In addition, should the Company sublicense its rights under the agreement, the Company has agreed to pay a percentage of sublicense revenue received at specified rates that are currently at low double digit percentages and decrease to single digit percentages based on the achievement of development milestones.

The term of the Company’s agreement with Monash continues until the expiration of its obligation to pay royalties to Monash thereunder. The license agreement is terminable at will by the Company upon providing 30 days written notice to Monash, or by either party for material breaches by the other party. In addition, Monash may terminate the entire agreement or convert the license to a non-exclusive license if the Company has materially breached its obligation to use commercially reasonable efforts to develop and commercialize a licensed product, subject to a specified notice and cure mechanism.

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7. Balance Sheet Components (in thousands)


	September 30,		December 31,
	2022		2021
Prepaid and Other Current Assets
Interest receivable	$	31	$	32
Prepaid research and development manufacturing expenses		130		740
Prepaid facility expenses		182		174
Prepaid insurance		412		280
Other		397		128
	$	1,152	$	1,354
Property and Equipment
Laboratory equipment	$	2,747	$	2,477
Computer equipment and purchased software		142		142
Leasehold improvements		2,084		2,084
		4,973		4,703
Less: accumulated depreciation and amortization		(4,526)		(4,252)
	$	447	$	451
Accrued and Other Liabilities
Accrued clinical trial expense	$	3,280	$	4,010
Accrued manufacturing expense		3,717		839
Personnel related		1,343		1,846
Accrued legal and accounting		54		265
Other		176		121
	$	8,570	$	7,081

8. Common Stock

As of September 30, 2022, the amended and restated certificate of incorporation authorizes the Company to issue 290 million shares of common stock and 10 million shares of preferred stock.

Each share of common stock is entitled to one vote. Common stockholders are entitled to dividends if and when declared by the board of directors. As of September 30, 2022, no dividends on common stock had been declared.

In March 2020, the Company entered into an open market sale agreement (the “2020 Sales Agreement”) with Jefferies LLC (“Jefferies”) to sell shares of the Company’s common stock, from time-to-time, with aggregate gross sales proceeds of up to $50,000,000, through an at-the-market equity offering program under which Jefferies will act as its sales agent. In November 2021, the Company entered into another Sale Agreement (“2021 Sales Agreement”) with Jefferies to sell shares of our common stock from time-to-time, with aggregate gross sales proceeds of up to $40,000,000. The issuance and sale of shares of common stock by the Company pursuant to the Sales Agreements are deemed an “at-the-market” offering under the Securities Act of 1933, as amended. Jefferies is entitled to compensation for its services equal to up to 3.0% of the gross proceeds of any shares of common stock sold through Jefferies under the Sales Agreements.

During the nine months ended September 30, 2022, the Company did not sell any shares of common stock under it’s at-the-market offering program. As of September 30, 2022, the Company had sold 6,920,339 shares of common stock for gross proceeds of $31.1 million under the 2020 Sales Agreement and $18.9 million and $40.0 million remained for sale under the 2020 Sales Agreement and 2021 Sales Agreement, respectively.

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The Company has reserved shares of common stock for issuance as follows:


	September 30,	December 31,
	2022	2021
Shares available for future option grants	3,953,393	2,806,953
Outstanding options	7,069,868	6,354,308
Shares reserved for employee stock purchase plan	400,000	400,000
Total	11,423,261	9,561,261

9. Stock Option Plans

In February 2014, the Company adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which was subsequently amended in November 2014, July 2015 and September 2015, under which it granted incentive stock options (“ISOs”) or non-qualified stock options (“NSOs”). Terms of stock agreements, including vesting requirements, are determined by the board of directors or a committee authorized by the board of directors, subject to the provisions of the 2014 Plan. In general, awards granted by the Company vest over four years and have a maximum exercise term of 10 years. The 2014 Plan provides that grants must be at an exercise price of 100% of fair market value of the Company’s common stock as determined by the board of directors on the date of the grant.

In connection with the consummation of the IPO in March 2016, the 2016 Equity Incentive Award Plan (the “2016 Plan”), became effective. Under the 2016 Plan, incentive stock options, non-statutory stock options, stock purchase rights and other stock-based awards may be granted. Terms of stock agreements, including vesting requirements, are determined by the board of directors or a committee authorized by the board of directors, subject to the provisions of the 2016 Plan. In general, awards granted by the Company vest over four years and have a maximum exercise term of 10 years. The 2016 Plan provides that grants must be at an exercise price of 100% of fair market value of the Company’s common stock as determined by the board of directors on the date of the grant. In conjunction with adopting the 2016 Plan, the 2014 Plan was terminated and no further awards will be granted under the 2014 Plan. Options outstanding under the 2014 Plan as of the effective date of the 2016 Plan that are forfeited or lapse unexercised may be re-issued under the 2016 Plan, up to a maximum of 1,136,229 shares.

Activity under the Company’s stock option plans is set forth below:


		Options Outstanding
			Weighted ‑
	Shares		Average
	Available	Number of	Exercise
	for Grant	Options	Price
Balance at December 31, 2021	2,806,953	6,354,308